If the Bush Tax Cut is Repealed, How Much Will Your Taxes Increase?

About the Author

Repeal of the Bush 2001 tax plan in 2003 would increase taxes or
reduce refunds for filers in all income classes in 2004. (See Table
1.) Overall, the rate of increase in income taxes after refundable
credits would be greatest for those with incomes between $10,000
and $30,000. Many tax filers with incomes less than $15,000 would
notice the tax change as a reduction in their refundable tax
credits. Taxpayers with incomes over $500,000 would have the
smallest percentage increase.

All tax filers, including those with incomes under $10,000,
would lose the benefit of the new 10 percent tax bracket. This new
bracket lowers the tax rate on the first $6,000 of income for
single filers and the first $12,000 of income for married couples
filing jointly. The new bracket is a major source of tax relief for
tax filers with incomes less than $100,000.

Families with incomes between $10,000 and $30,000 would also
lose the benefits provided by changes to the child tax credit.
Repealing the 2001 tax cut would reduce the value of the child
credit by over 15 percent in 2004. In addition, many taxpayers who
pay little if any tax would no longer qualify for the refundable
child credit. Prior to the Bush tax plan, the credit was refundable
only for families with three or more qualifying children.

Repealing the tax rate reductions, which are the source of
important economic incentives, would be particularly noticeable for
taxpayers with incomes over $50,000.

Ralph
A. Rectoris a Research Fellow in The Heritage
Foundation's Center for Data Analysis, where he also serves as
Project Manager.

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Table 1
- The Effect on Taxpayers in 2004 if the Bush Tax Plan is Repealed
in 2003

Adjusted Gross Income (AGI) Class ($2002)

Percent of Income Tax Returns

Percent Increase in Average Tax after Refundable
Credits

All

100.0%

8.8%

AGI of 1-10,000

18.5%

8.1%

AGI of 10,000 to 20,000

16.5%

74.2%

AGI of 20,000 to 30,000

13.5%

44.9%

AGI of 30,000 to 50,000

18.5%

15.1%

AGI of 50,000 to 10,000

22.2%

10.1%

AGI of 100,000 to 500,000

9.4%

6.5%

AGI of > 500,000

0.5%

4.4%

NOTE: The Percentage Increase in Average Tax in
Table 1 refers to a change in the Federal personal income tax after
refundable credits and includes an inflation adjustment. Average
increases for income classes below $20,000 reflect lower refundable
credits. Taxpayers with AGI less than zero are included in the
total. The averages are based on projections of the total number of
tax returns filed. The effective date for the tax change is assumed
to be January 1, 2004. Tax changes include estimates for the child
credit, individual marginal rates, the 10 percent bracket,
limitation of itemized deductions, the personal exemption phaseout,
the standard deduction, 15 percent bracket, the Earned Income
Credit and the Alternative Minimum Tax.

Calculations in the table were made using The Heritage Foundation's
Center for Data Analysis microsimulation tax model. This model
estimates the change in federal taxes for a representative sample
of federal income tax filers using data from the public use version
of the 1995 Tax Model File produced by the Statistics of Income
(SOI) Division of the Internal Revenue Service. Data from the SOI
file have been supplemented with addition information from the
March 1996 Current Population Survey (CPS) produced by the Bureau
of the Census. The March 1996 CPS contains family income
information for 1995. The 1995 data from the SOI and CPS have been
"aged" to 2004 using a forecast produced from the WEFA
macroeconomic model, that has been calibrated to the 2001 baseline
economic assumptions published by the Congressional Budget
Office.